Meet the new boss, same as the old boss
Jerome Powell’s testimony in front of the Senate Banking Committee was a lesson in the forward defensive that Geoffrey Boycott would have been proud of. Powell, the nominee to take over leadership of the Federal Reserve from Janet Yellen next year, toed a very similar line to the outgoing Chair noting that there is still slack in the US labour market and therefore wage pressures are not adding to the inflation picture at the moment.
The tax bill has moved out of the Senate Finance Committee and will likely be voted on tomorrow; there is little chance that a single Democrat will back the proposals so Republicans only have a few votes to play with and internal dissent on issues such as automatic tax increases in later years are dividing the party. A positive vote in the Senate will provide momentary dollar support but if the markets believe that anything that comes after will be a fudge then that support will evaporate.
Yellen speaks later this morning however we believe there will be little deviation from the proscribed track of Powell’s thoughts.
Divorce bill agreement may not be the progress we need
A report by The Telegraph newspaper yesterday evening that the UK and EU had reached an “agreement” on the divorce bill due as the UK leaves the European Union has given sterling a shot in the arm and pushing GBP to a 2 month high.
Unfortunately if you think the ‘agreement’ on a Brexit bill simplifies the negotiation process then you haven’t been paying attention as the wider Irish question is a hurdle that simply cannot be vaulted by a pledge of cash. Both the divorce bill and Irish question are due to be agreed before a lunch between Prime Minister May and European President Tusk this coming Monday.
Sterling can easily carry higher from here on the proviso that this article is not shot down by No. 10 before Monday. Caveats remain on whether we do start talking about trade and whether businesses and the industry bodies that represent them view the progress as anything more than political talk.
May will also have to head off issues on her right flank on the payment given some members of her cabinet, let alone back bench Brexit head bangers, said the EU could “whistle” if they thought any money would come their way.
Have a great day.
Jeremy Cook, Chief Economist